Applebee’s considers sale(2)

The international casual dining franchise with a $1.96bn market cap has announced it will explore strategic alternatives to enhance shareholder value.

Applebee’s International, the Overland Park, Kansas-based company behind the Applebee’s Neighborhood Bar & Grill restaurant chain, said Tuesday it has formed a committee to evaluate “strategic alternatives, including a possible recapitalization or sale”.

Citigroup Global Markets, Inc. and Banc of America Securities LLC have been retained as financial advisors, while New York-based Cravath, Swaine & Moore LLP and Kansas City-based Blackwell Sanders Pepper Martin LLP will provide legal counsel.

In recent months, private equity firms have purchased myriad major chain restaurants, including Sbarro, Outback Steakhouse and TGI Friday’s UK division.

Applebee’s noted in a written statement that it does not intend to disclose further developments relating to the matter until after its committee has evaluated its options.

The announcement comes on the heels of public disapproval with the chain’s management and performance by hedge fund Breeden Capital Management, which owns 3.9 million Applebee’s shares and is led Richard Breeden, a former US Securities and Exchange Commission chairman.

In a letter attached to a December 11, 2006 SEC filing, the hedge fund noted, “During the three years ended December 1, 2006, the price of Applebee’s shares fell from $26.13 per share to $22.34, a decline of 14.5%, while total shareholder return fell 13.4%.”

The letter went on to say that the chain’s performance in terms of total return to shareholders ranked 13th worst out of 14 comparable public companies, and criticized Applebee’s operating performance, efficiency, and growth strategies.

Applebee’s is set to release fourth quarter and fiscal year 2006 results after markets close Wednesday; its January 31 filing with the SEC noted that system-wide US sales decreased 5.8 percent in January, reflecting an 8 percent decrease in guest traffic, which the chain attributed in part to severe winter weather.

News that the firm will explore strategic alternatives sent its shares soaring Tuesday to a 52-week high of $27.32 on the Nasdaq; it closed at $26.32. Mid-morning trading on Wednesday saw share prices hovering around $26.66.

There are 1,942 Applebee’s Neighborhood Grill & Bar locations operating in 49 US states and 17 countries, including Egypt, Lebanon, Kuwait, Greece, Brazil, and Mexico.